Why the "Fully Invested Bear" Wins in This Market | Jeff deGraaf
Summary
Macro Framework: Emphasis on inflation vs. growth as the key driver for equity returns, with current positioning indicating slow growth and mid-range inflation leading to a choppy, narrow-breadth market.
Rates & Yield Curve: The market key is the 2-year Treasury trending lower and a steepening yield curve, which historically supports equities; 10-year matters mainly via the curve’s shape.
Bubble Detection: A bubble is flagged when an asset doubles in two years; the best risk approach is to cut after a 30% drawdown and re-enter partially on new highs; gold recently hit bubble territory and then consolidated.
Metals Outlook: Broad strength across precious metals (gold, silver) and base metals (copper, aluminum) with a globally supportive setup, suggesting ongoing momentum in the Materials complex.
Sector Skews: Healthcare screens attractive on revenue-to-market-cap metrics and is breaking out from neglect; in contrast, Semiconductors look stretched with market cap far outpacing revenues.
AI & Infrastructure: Bullish long-term impact of AI acknowledged, but a near-term “reality check” is expected; notably, data centers (often seen as AI picks-and-shovels) do not look good technically.
Bonds & Allocation: Keep US Treasuries/bonds as dry powder and rebalance systematically; use oversold equity conditions to rotate from bonds into stocks when probabilities favor risk-taking.
Outlook & Seasonality: December seasonality is a tailwind, with a cautiously constructive view into 2026; expect rotation toward undervalued areas like Healthcare and selective participation given mixed breadth.
Transcript
We measured about 50 different bubbles. Historically, what we found is if the asset class doubles in price within a two year period of time, that's considered a bubble. The default should always be bullish, as I like to say, I'm a fully invested bear. In other words, I'm always nervous. I'm always skittish about something, but I know what the probabilities are. Hi, I am Ed D'Agostino from Mauldin Economics, and this week we are talking macro and markets with one of the best in the business. Jeff DeGraff from Renaissance Macro Research is with us, and I have to say this was one of my absolute favorite conversations of the year, just packed with value for any kind of investor. I hope you enjoyed as much as I did. Here's Jeff. Jeff Degra, it's great to see you. Thank you so much for taking some time to, uh, join us today. Ed, thank you for having me. I have a colleague who was at Lehman, I think at the same time as you, Jared, Dian. He said to me that you're the best technical analyst in the world. Well, that's, so, no, no pressure. Yeah. Great. Thanks Jared. Well, tell him I said hi. I haven't talked to him in years, so, uh, I'd love to reconnect with him. Oh, okay. I, I would be happy to make that happen. I wanna start, Jeff, by just digging into sort of your, your process and make sure we set the stage for the context of what we're going to talk about here. 'cause a lot of times you jump onto a YouTube finance video, right? And someone's talking about their ideas. You have no idea what their investment time horizon is, um, or what their process is. So as a technical analyst. H how do charts fit into your work? Is it, is, is the chart, the gospel, the Bible, or is it the start of a process? It's a great question. And I came to charts, um, you know, I think where, how a lot of people come to charts, which is, that's, you know, that was not my degree. You know, I didn't go to school, I didn't go to church school. Um, I've got a, a degree in finance. I've got a CFA, uh, so I, you know, really came from the fundamental side of things. And frankly, I was just dismayed by the disconnect between. You know, what quote unquote was supposed to happen and what was actually happening in the markets. And, um, my, who actually ended up being my mentor, and I worked with him as a fabulous, uh, human being for one, and, and was a really great mentor, Steve Chauvin, uh, at Merrill Lynch. Um, I joined him at Lehman Brothers when he left. And um, and the whole reason was he had this call. Uh, at Merrill Lynch in, uh, I think it was the two 15 call, uh, and he just talked about charts and it was an equity and option update. And I was on the, the analytical side, on the, uh, the fundamental side. And I remember listening to him, and I'm just saying, son of a gun, this guy gets it more. Right? Like looking at charts, then you know what's happening from the fundamental side. So what is going on here? Um, and I, you know, I picked up a couple books and it just really resonated with me, which was. Um, you know, uh, a lot like, uh, playing poker, if you will, right? It was about probabilities, uh, and making sure that those were in your favor. Um, and I, I started just, you know, more and more in the business started saying, boy, I, I, I think you're better off listening to the market than you are telling the market what to do. And, um, you know, I always felt like from a fundamental side, I was telling the market what it should be doing and it couldn't care less what I thought. Right? So, um, and I've just had a lot more success listening to the market and then. Frankly, I still have the fundamental bias. I still have more of a value bias. I, you know, there are return on capital. All those things are important to me for sure. Um, but I do listen to what the market's telling us, not only about individual stocks, but industries and countries and sectors. And then, um, taking that and then applying it to where we are within the economic cycle and, and, you know, the likely path of rates and currencies and the like. This might be. Too simplistic of a question, but h how about timeframe? How, how does time, how does your work slot in, in a, in a world where it's really hard to beat the index? Right. Um, h how, how does charting and technical analysis fit in and where do you find it gives you an edge in terms of timeframe? It's a great question, and I think it, I think it varies depending on, on the. The, the practitioner, um, you know, I know day traders that use it, uh, and use it successfully. I would say, ed, I think the most important question to ask, and I I will answer your question. I think the most important question to ask yourself is, am I a trend follower or am I a mean reverter? That's, you know, it's almost like growth and value. You have, you have two choices. As a chartist, either you think that up is good and it will continue, or you think that up is bad and it needs to mean revert. And, and that's kinda what value value investors do, right? They think that, uh, somehow the past is prologue. And so we're gonna be stuck with if we're up too much, we have to go down. If we're down too much, we have to go up. We're growth investors are, you know, kinda like blue skies ahead and, and, you know, here's how that's gonna work. And, um, you know, other, other industries, uh, sectors, companies. Um, you know, lose their edge and they're gonna go to, you know, zero or circle the drain. Right. So I, I think that's an important question that everybody has to ask themselves. We've done a lot of testing on it. We've done a lot of, of, um, of work around this. And it's very clear to us that the right path, if you want, sort of. Career sustainability is being a trend follower, not a mean reverter. But at the same time, we do use mean reverting systems because um, it's almost like, you know, the shorting your cat, right? It can be both alive and dead at the same time. And so we will use trend following for kind of the intermediate term. Look, and then we'll use mean reversion for the very long term look, or in fact the very short term look. So it's, it's, it's, it's both. Um, and I'll, I'll give you some, some real clear statistics. Um, on a monthly basis, you'll find that if you were just to rank stocks in the s and p 500 on the returns over the last month, and you take the top 50. Versus the bottom 50%. The bottom 50% are more likely to be in the top 50% the next month. Right? The bottom 50, the top 50% are more likely to be in the bottom 50% the next month. Right. So there's that mean reverting tendency just on a month to month basis. Month to month basis. Right now, it's not everyone, but it's, you know, it's, if you were to say, Hey. Where are my probabilities? It, it, it, it works that way. If you take that out and extend it, um, really you have to get out at least three months. It's usually about six, but let's say it's 12 months. If you, if you do that same exercise 12 months out. The top 50% are more likely to be in the top 50% for the next 12 months. The bottom 50% are likely to be in the bottom 50% for the next 12 months. So again, like shorting George Cat, it's both alive and dead at the same time. Right? So we'll use mean reverting in the very short run because we know that there's some, some, um, some optionality there. Uh, but all within the context of where the trends are for the more intermediate term. And then once you get out, basically two years, it all falls apart. Like there's no. There's not a lot of usage that I can say, Hey, the last 12 months return has giving me some forward window. Once you get out two years, it's flip a coin and, you know, throw a dart at the board. It doesn't really make much difference. So our timeframe, which is really, you know, a byproduct of what our clients are looking for, is usually in that six to 12 month window, is how I think about it. Um, so that's, that's where we, you know, we'll use moving averages that are, say 65 days in length, 200 days in length. That's basically how that plays out. What we did find in, in our work is that your timeframe should be a reflection of the longest moving average that you use to identify trend, right? So if you're using a 200 day moving average, they're roughly 20 days in the, in a month, trading days in a month. Um, so that's a 10 month kinda holding period, and that works out pretty well. You could use, um, you know, obviously 240 day moving average, which would be a year, but you kind of, excuse me, you kind of want to keep your timeframe. Of your longest moving average that you're using to identify trend as your typical holding period. I think I just learned more about technical analysis in the last 10 minutes than, than the last two years. That was great. Was great. Hopefully the past holds as we go forward. That's an important part of it too. Right. Let's talk a little bit about sort of more specifics of your, of your framework. Uh, you, you have a great chart. One of the first. Things that I was exposed to at, at, at ren Mac was sort of the, the way you look at the market cycle and you have this great chart where you plot inflation on one axis and growth on the other, and, and you follow returns based on sort of an ellipse on that chart. Um, c can you talk a little bit about why you chose those two metrics? One of the things that we've done, it was, it was really the primary reason for starting REM Mac back in 2011. Um. Was we, we look at data. I mean, we're just kind of data junkies. It sounds, you know, nerdy and it is. Um, but it's, I mean, we just kind of get into it and, um, I think one of the things, so we, we just look at economic data and say. You know, I don't really care. I mean, this sounds flippant and I don't mean it to ob. I don't really care what the economy does. That's not my call, right? I mean, I care about what the market does and a lot of people, I think, make the, this presumption and it's just, it's just wrong that the market and the economy are the same thing. And they're not. And so one of the things that we did is we took all the, all the public economic data and just ran it through our statistical tests. And we've had different ways that we look at things. You know, there there is, there's statistical significance and then there is. Um, there is kinda like real world significance, right? So if I've got a, for example, you know, if I've got a system that is right 65% of the time and the average return is better than the loss, that might not be statistically significant, but it's economically significant, right? So we, we, we make sure that we're blending those two and always looking at it, but we've just basically ran all the, the data that comes out from the. The bbl s and you know, whatever the government, you know, when, when they're open, whatever they, they, they have, um, and they, and they give to us and we ran it through sectors and stocks and currencies and styles and everything else. Because what we found is that, hey, they may or may not be helpful in predicting the economy. But maybe they are or not helpful at predicting the market. And so what we found is that infl and in, in fact if you have the two you you mentioned, so we, we plot inflation on the Y axis, so that's the vertical axis. And we plot growth on the X axis. That's the horizontal axis. And what we found, which I think is, is kind of shocking to most people. Inflation is far more important. To the returns of the s and p, don't, let's not talk about GDP to the returns of the s and p then growth is, and in fact, and I think, um, contrarily, and this is a really important point, the worse the growth, the better the returns for the s and p because the s and p is actually more attuned. And sensitive to policy than it is to kind of the data, right? So in other words, and, and look, we've, we've all done this long enough where we know you sit, you know, you sit and you see a print, you're like, oh, that's great news. And the market's down, you're kinda like, wow, well, well, the market's down. That doesn't make any sense. Actually it does because the great news means policy is likely to be less accommodative going forward because it doesn't need the help. And so they're taking away the punch bowl, et cetera. So what we find is that the inflation tends to be the precursor. To whatever the policy's gonna end up being. And so that, that distinction, that, uh, juxtaposition between where inflation is and where growth is. Um, while it's helpful for the economy or the, the economic call, it's far more influential to the s and p call. And then we, we tease out of that. What sectors do well, we tease outta that. If, is it, is it, uh, cyclicals versus defensives? Uh, what happens to bonds, right? Because we can also make that call so that it's a big part of our asset allocation process where we say, Hey, we know historically what should be happening here, and then we'll use the technicals as a basically position sizing, okay? Are the technicals aligning with quote unquote what history's telling us should happen? Because then we'll make. Obviously a bigger bet, if you will, will, will have a more confident position. Um, and, you know, we'll skew things in that, uh, in that regard. But I think, you know, if, if anything, and what I like about it, it's a quantitative way, um, that we can see kind of what happens to the s and p. And as much of, of of that being important. I think what's even more interesting and kind of warms my heart, frankly, is it's very contrarian in nature. Like when, I mean, I'll give you a great example, the the, the bottom left, which is when inflation is low, so call it deflation potentially, and growth is in the basement. Um, we call that the de deflationary bust zone. That's right where we were in 2009, right? That's where we actually were, um, in the fourth quarter of 2023. Um, and so the deflationary bust zone, and I guarantee you you're reading the Wall Street Journal and you're not thinking, man, how do I get more exposure to equities? You're kind of thinking, geez, do you know, is this business right for me? Maybe I should go be a school teacher or something. Right? So, um, it, and, and, but, but those are statistically meaningful changes. In the s and p when we're in those zones. And so, you know, that just kind of gives us the confidence of the history, what the history tells us. And I think if you really peel back the onion and you start looking at it, boy, that's a lot about policy. And the policy makers are gonna end up having at some point an influence on the equity markets, either positive or or negative. Uh, and it gives us an idea as to where, you know, where they are right now. Um, in fact, we, we update it, uh, every month. So we, we just update it at the beginning of this month. Um, and it's in the left zone. So the left zone would say that growth is slow. And I think you can see that in some of the PMI data and the inflation is in the middle zone. So we're kind of in this structural slow growth, but not great on the inflation front. And historically, we know that the s and p returns about six point a half percent on an annualized basis in that zone. Not terrible, but not great. Um, and so it's, you know, it's a, it's a choppy market. It's a fickle market. It's one. That, you know, does not tend to have a lot of breadth to it, which is what we're seeing right now. Um, it tends to favor, interestingly enough, it tends to favor discretionary. Um, because it tends to lead the idea that the policy makers are gonna come to the rescue. So, you know, we're keeping a very close eye on discretionary, and that's still a mixed picture here. Um, but we also know in this zone, when we're in the zone, you have a tendency to go lower, right? You don't have a tendency to go higher. In other words, inflation doesn't tend to pick up here because growth is low. It tends to actually continue to contract now it hasn't contracted, um, with the same pace or trajectory that we would expect historically. But we also know sitting below this zone, the, in other words, where the puck is likely to go, is a very bull zone for, for stocks. So we'll see. So essentially. Measuring inflation versus growth is a precursor to where you see rates are going to go. Yeah. Well, what policy, what policy is likely to do? Right. So in 2021, um, at the, um, you know, the tail end of 2021, we were in the top right hand zone. So growth was hot, inflation was hot. And it just said, boy, we gotta be really careful. We're talking about annualized returns of like 1%, you know, obviously with a downside tail to it. Um, and you know, lo and behold, within six months, you know, they were raising rates and I mean, it was, honestly, it was saying, it was saying well before the Fed had done anything, that they were gonna be late to the party. That they were, that they were, they were allowing rates to be way too loose for too long because of what you're seeing. And again, you could. Pick up the Wall Street Journal and see everybody had a job. Everybody's spending money, every, you know, all the kind of COVID rebound effects of fiscal policy and, and, and cheap money. Um, were playing the, the themselves out, including the SPACs, right? So you kinda look at some of these things saying, all right, like, this is ridiculous stuff, and this is the point where the market tends to be vulnerable. This is a good time to hit that d-ring on your, on your shoot and, you know, parachute out of these things. That's funny. You mentioned SPACs. I mean, I always, uh, SPACs have been around forever, right. I mean, for, for a long, long time. Right. And I always kind of thought they were a neat. Idea if you could get behind a sponsor that you really liked and had a great track record, uh, it might be a fun way to to, to speculate. And then Wall Street did what Wall Street does, and I've been doing this for 35 plus years. And, and, and I, I understand the political side of it and the, you know, the Wall Street gets a bad reputation and at the same time. You sit there in this business and you're like, boy, I mean, people can't help themselves. Like they, they, wall Street gives the people what they want at the time that they want it. The problem is people want the wrong things at the wrong time. That's the big problem. But it's a business, right? And so they, you know, they just don't care. We're not in the issuance business. So I don't, you know, I have nothing to do with that, but, uh, you see that a lot for sure. Well, let's talk a little bit about interest rates. And I, and I want to, uh, since, since that was a great setup for it, um. Before we get into sort of. The theoretical, like should the fed cut rates and, and who's going to be the next fed chair? Um, can maybe just talk a little bit about where the area, the parts of the yield curve that you focus on. You know, 'cause we've got the 10 year, uh, above 4% right now. Um. Two year kind of stick a little, seems, feels like it's a little stuck. Um, how do you look at the different parts of the yield curve and what, what import do you put on them? Well, we look at 'em all, um, and I'll, I'll give you just some, some stats again about what the, the market likes and how the market thinks about it. The market is, is very sensitive to two year yields, right? So the short end of the curve, um, remarkably enough, if you look at that statistically. There's not much evidence that the Fed fund rate really matters. Um, but the two year does, and I think what that is is the two year is really a reflection. Of the expectations of the Fed, not for December, not for January, but for the entirety of kind of those dot plots, uh, over time. Right. And so we're always interested when there's a big disconnect between kind of what the Fed's saying or thinking and what the two year yield is telling us, because usually the two year yield's gonna get it. Right. Right. So, um, we, we we're very sensitive to what's happening to the two year yield. Now the good news is. All the trend indications for the two year yield are lower. So that's beneficial for equities. In terms of a, of a backdrop, the market doesn't care too much about the 10 year yield. Um, I wanna say that carefully 'cause there are points that it definitely does. Um, what one of the things that we look at is. Um, frankly, you could, you could just use a Z-score. I said we weren't gonna talk about Z-score, but I just did. Um, you could just look at the range of, of yields, like, uh, you know, I've been at 5%, which was the high, and I've been as low as 3% over the last three years. So I've got that, uh, that, um, uh, those, those barbells, right, the high and the low. Um, and if you break that down into percentiles and said, okay, well if that. You know, 200 basis point ranges in a percentile. If I'm in the top 80th percentile, that tends to be bad for equities. If I'm in the bottom 20th percentile, it tends to be good for equities. And then what's my rate of change? How quickly did I get there over the last three or six months? That tends to matter. So, so those are, those are interesting and important. What what was really interesting, um, and people have a hard time with this. The market couldn't care less where rates were anything longer than three years ago. So when people say, oh, but the rates were here in 1980 or what it was, you know, some crazy, it's like the market just doesn't, the market has already adjusted and it just doesn't care about that. Right. The th the three year range is about the look back for the market's memory in terms of what it cares about. So we don't really get too. Wrapped up in where rates were anything longer than two or three years ago. 'cause it just doesn't matter from the market's perspective. The other part, when I said the 10 year doesn't really matter. I, I, it's, it's, it does, but in a different way. The 10 year matters more in terms of its relationship to the two year yield, otherwise known as a yield curve. Right. And whether the curve is steep or the, the curve is flat or inverted, that does matter. So the perfect setup for the market, for the s and p is the two year yield moving lower. The yield curve steepening. Right. In other words, the, the 10 years kinda staying where it is, at least relative to the two year yield as it's coming down, and that's putting a gap between those two. That's the, that's the sweet spot for, for equities. Historically, I think I heard you say in another interview that sort of the, this. This normalization that we're going through of rates or that we've experienced where it's, where rates are sort of back to what we remember when we didn't have gray hair. Um, that, that it's actually seems to have been positive for the markets. Is that, is that right? Yeah. Um, you kind of get getting out of the financial repression, which, um, frankly had you told me that in 2016, I mean, this is a great reason why I'm a. Chart guy. Um, you know, I would've been like, oh, there, there's no way the market or the economy, it's just been so used to these ultra low rates and negative real rates and everything else that we can't stand on our own two feet. I mean, it's just gonna be, we need the crutch. And we, we haven't. And so this normalization, but partly through the. The banking system, and I think you've seen it really, you know, probably, uh, more than anywhere is in, uh, both Japan and in Europe, right? I mean, European financials look fantastic and nobody trusted those for, you know, 15 years after the financial crisis, right? So I think this, this mechanism of kind of normalization of a steeper yield curve and, you know, positive real rates and everything else, um, has actually translated into something where. There's a, there's a market message, there's an economic message embedded in things, and so people can make decisions that are good or bad based on what the, um, what the market's telling you and, and, uh, you know, real economic decisions. So all that said. Should the Fed cut? I think they should. Uh, Neil dda, who handles the, the economic side of the ledger at, at ren Mac, um, you know, looks at employment and everything else certainly is, is in the camp that they should be cutting. And he's been in that camp for six months now. So he's, he's been, uh, pounding on the table. Um, I would say I, I think it's more of a tossup than, than, than Neil does from what I'm seeing. Um, I think they should cut because of, uh, what we're seeing in some of the, the, the sectors and the factors and, and the way that that's playing out. But at the same time, when I look at things like the, the spread between, uh, say double B and triple B, uh, credits, right? So you're kinda taking the Fed or you're taking the treasury out of it. Um, you know, credit spreads are. Historically pretty tight. I mean, there's not a lot of evidence that there's much stress or strain in the system. Now, that doesn't mean there won't be, right? So, you know, Neil's using the. Uh, the economic, uh, and, and particularly the employment side of the ledger to say, Hey, this, this will be a problem because people are losing their jobs and this is, you know, this is where things are likely to head, um, and housing and everything else. So I, I do think the Fed can cut, and I don't think it's gonna be nearly as inflationary as what people are worried about. We'll see. Um, but, um, certainly it does appear that, um, that there's room and the, and the two years have been telling you that as well. So I think, you know, I, I take my cues from that, as you mentioned, that in 2016 you would've. You would've never guessed we would be where we are today. Uh, absent charts with regard with, with the interest rate going up the way it has. Uh, I think the same phenomenon happened with tariffs, right? I mean, we, earlier this year, the market panicked a little bit, and I think in the economy there was a lot of panic and some disruption related to tariffs. But as we sit here today, you know, tariffs have gone from an average of 2%. Two years ago to, I think the latest I heard is about 10% now. Um, it's a pretty big change and pretty quick and yet it's kind of been absorbed. Does, did, does, is that, is that how you see it? Do you see any further ripple effect from tariffs? I think it's gonna be, yeah. I mean, sure. There, there, there, it's an ongoing process, right? I mean, that's the one thing with this administration, it's always hard to, to, to know exactly what's gonna happen from day to day. I, I think one of the things, and, and we talked about it, um. You know, in our podcast and, and uh, internally was there's just this notion of, um, tariffs have to be, uh, absorbed or the cost of tariffs have to go to the consumer. Hands down, point blank. That's it. That's the way it works. And that's just not necessarily true. Now, you know, you can, you can end up with it. It has everything to do with the elasticity of demand and supply, right? If, if I've got alternatives, then I'll go to alternatives. Now it might not be. The color I want, it might not be the quality I want. It might not be, you know, a perfect fit, but there are alternatives that, and, and, and those tend to get played out with substitutes and everything else. So to us, the tariff, the, the, the tariff concerns were way too one dimensional. And, you know, the economy and consumer choices is a pretty complicated, um, uh, complicated formula. And I think people were just, you know, and I like to keep things simple for sure, but I think people, people were looking at it way too one dimensionally that, you know, if this, then that. And that's just not the way that has to work. And I think that's what we're seeing, you know, today, is that the substitution effects and, and frankly, you know, some of the other side of the ledger, which doesn't get talked about, which is our tariffs that we had on our goods. Have gone down as well. Right. So we, we've kind of balanced that out. It, people are looking at it as a one-way street and it's like, well, was that really a one-way street or is it a two-way street? And you know, the traffic jam that we had on our side is now flowing a little bit more freely. That's a great point. No one ever brings that up Right. On mainstream media. Yep. Yep. Never hear that. Right. I wanna get to the markets with you, but one, one last question, and this might be a little bit more of a, of a Neil dta, uh, question, but this concept of a khap economy. Where you've got a certain cohort that's doing incredibly well, uh, obviously the, the wealthy cohort, and then you've got sort of the everyone else, right? Uh, the lower, you could argue 55%, maybe even more that are feeling like they are falling behind. Um. H how much do you guys talk about that at Ren Mac? And, and do you, do you feel like it will eventually be a narrative that hits the markets? Yeah, it's a good question. Um, you know, we, we see it in, uh, you can see it in some of the discretionary names. Uh, you can see it in other. Parts. I mean, I think housing is, is part of that, right? It's unaffordable to so many. I mean, this is really why the inflation story is an important one because that, that, as much as anything, or more than anything really is the, the impact of what happens to that, that lower. Uh, that lower tier and, um, you know, the purchasing power. Um, but you know, frankly, the real wages have been decent. Um, you know, not spectacular, but certainly not, not bad. And I don't think they're as bad as people expect that they, they, they would otherwise be. Um, I. Look, uh, he, he spends a lot more time on this than I do. But I would just say that when, when we're looking at it through the market's lens, it doesn't seem that it's a big problem. Now, it's a social problem. I think it's a political problem in terms of the economic problem. And I want, I wanna be sensitive because obviously there are people in this, in this, you know, uh, the silo. Um, but, uh, in terms of the, the overall impact, I, I think, and I've always believed this. The markets, and I'm not talking about the stock market, I'm talking about the economy, but the, the market based economy is usually very good at, at. Helping to figure this out, right? And whether that's, you know, shifts in, in employment where I can no longer work in a paper mill, but I have to do something else. I mean, the, the, the free market, the ability to do that and labor mobility tends to be a really, really important part of, of what's happening. And I get it that people don't wanna change jobs and, and the like, but um, look, I think, you know, you and I are probably facing the same thing with ai, right? I mean, there's so many things that. That are gonna be able to be done without our help as much as what it was previously. Hopefully the years of experience that we have can, uh, can make up for that. But I think, you know, there, there is a certain displacement that's, uh, that's inevitable. I do have to admit, I often find myself thinking I'm. I'm glad that I'm closer to the end of my career than the beginning. 'cause this feels like a big challenge. 100%. I couldn't agree more. Yeah. I've got, I've got kids that are, you know, in college and, uh, and I, I, I tell 'em like, you're, you're in a way, you're very lucky because. You know, you're coming out of this at the time where you're not gonna be disrupted. You're gonna be a disruptor, but make sure that you know how to disrupt. Because if you don't, if you think it's, you know, filling in my seat, that's not gonna work. You're gonna have to think about it completely differently. It's already turning in into an old saw, right? It, it AI's not going to take your job, but someone who uses AI will 100%. Yep. Couldn't agree more. Let's jump into the markets a little bit. Um. Couple of asset classes that have been doing incredibly well. And so you have people asking if, if, if they're in a bubble. And I've heard you talk about your thoughts on, on bubbles and so I, I kind of wanna just unpack that a little bit. Gold ai, um, uh, utilities all, all kind of going crazy lately. Um, what are they in bubbles? How do you measure bubbles? How do you trade bubbles? Really be interested in all your thoughts around that. Yeah, I'm happy to talk about that. It's, it's, uh. It's ongoing research, but, um, I think the, the first thing that you have to do is say, okay, well I have to have a, a rule. And this rule has to work for one. Um, and it can't have, uh, it can't have, uh, many, if any false positives, right? Like it has to be tried and true. Um, and so one of the things that we just, you know, went through and we, we, we measured, um, about 50 different bubbles historically, um, from a, from a big macro perspective. So this, this would be sectors, industry groups. Um, markets and commodities, not single stocks. It's a different, it's a different bucket. Um, what we found as a very good, like doesn't get it wrong, um, is if the asset class doubles in price within a two year period of time, that's considered a bubble now. That's just saying, I can identify the bubble that doesn't tell you anything about what's gonna happen from there. Right? So we looked at a lot of different ways. Okay, well I'm in a bubble. How should I think about it? What's the, the, the right way to play? How should I think about it from a risk adjusted standpoint? In other words, sharp ratios. How should I think about it from, you know, actually extracting, uh, extracting profit out of it? Uh, it's a very, very challenging, um. Uh, uh, regime if you will, a bubble regime. Uh, and lemme give you some stats around that. In every instance on average, uh, regardless of do I sell as I'm going up, do I sell as it's coming down? Do I sell proportionately? Do I sell more at the beginning and less the end? Or do I sell less at the beginning and more at the end? Like, we looked at all these different ways to do it. Um, the, the, the best long term. Way to play. It was, and this, it doesn't work for all of 'em, but it just works for consistently. The best was you say, okay, I'm gonna, I'm gonna wait for a 30% draw down and I'm gonna pull the rip chord and I'm just gonna be done. Right. And if it goes back and makes another new high. I'll take half of what I, what I, uh, took out and I'll reinvest it, right? Because it might go higher and I don't want to do it at the very end. So the, the, the, the Nasdaq did this in 1997. Um, was the first indication of a double within two years, right? So had you pulled all your money out, you would've missed out and probably been throwing it all in, in 2000, right? So you have to have kind of, this, I need to be able to reinvest, but I need to do it proportionately lower than where I was before. Every, every one of these on a median basis, you lose money. About 20% of 'em will go on to double from there. Right, but that 20%, if you're in that 20%, it makes up for all the other ones, right? So if you're a cowboy, this is how we think about it. If you're a cowboy, you can play, but have that stop if you're kind of a normal investor. I would take half of the money out and I would just, I would just let it, just let it go. And if I have a 30% draw down, I'll, I'll take it out. But the bub the problem with a bubble, and this is why we, we identified it, is usually technically, um, and I, when I say usually I'd say 80%, 85%. If I'm gonna have a top, if I'm gonna transition from a bull market to a bear market, it's not gonna be a V top. You don't go straight up and then straight down you're gonna kind of go sideways. You're gonna chop around. The moving averages will cross over. It'll roll over and, and that'll be a top. And, and those are easier to, to identify. They're easier to play because they, they take time to develop. V tops are literally just this vacuum that just sucks people in, sucks capital in, and then just eliminates them. Right? And there's just no, no getting out. The, the psychology is different. The whole thing is crazy. So we wanted to be really careful on how we thought about that and, and, and identifying it so that we know, hey. If this isn't for you, this is a good place to step aside or take some money off the table and think about this differently. Um, it's interesting because with stocks, with single stocks, that that number is truncated. It's about six months. So if you double within six months, that's kind of your double the, the, your, your bubble, your bubble zone. And again, very, very dangerous. We use like a 20% drawdown. Um, that's kind of how we think about it. But um, just know that in that when you're, when you're in those zones. The probability of having a 50% drawdown is well over 60%. It's about 65%. So if you're, if we identify it as a bubble, I can say to you, Hey, ed, there's a 65% chance that you're gonna have a 50% drawdown. So just be ready for that. And most people. When they hear that, say, okay, I'll take some chips off the table and, you know, sit on my hands. And that's, that's what really what we're trying to do is just make people understand the, the probabilities, um, because the emotional toll is so, these things are so seductive, um, that you wanna be really, really careful with 'em. Right. So, um. You know, we, we, um, we identified gold as a bubble about a month and a half ago. 'cause it doubled, um, and it promptly corrected, right? I think of the week that we said, Hey, it's in bubble territory. It, it promptly corrected and consolidated, but, um, it didn't draw down 30%. So it just says, Hey, this is still kind of in that zone. Just be aware that you're in a. Uh, in a frothy, you know, in a frothy condition that you wanna be careful of, the Nasdaq actually has to get to about 36,000 to be officially in a bubble. So it's got a long way to go to officially be in a bubble. Um, you know, there's some stocks that certainly feel stretched to us. If we look at one of the ways that we, we measure the, the, um, the, the market. Um, or again, this is a little bit more fundamental, but we look at what's the, what's the proportion of say, semiconductors. In market cap to the entire market cap of the market, right? So I've got the entire market and I've got semiconductors. We'll look at that, that percentage, and then we'll compare the revenue of semiconductors, right? So all the sales of the of semiconductor firms to the entire revenue of the market, and look at that differential. Right, and right now, semiconductors, um, their revenues to, uh, the market versus their market cap is way out of bounds. It's, it's right where it was in 2000. In other words, the market has priced in something that the sales just don't really, you know, come close to, to justifying. On the other side of the ledger, healthcare looks very, very cheap. The, what you're seeing from a revenue standpoint. Um, versus the market cap that, uh, that is represented by healthcare in the market is, is actually pretty attractive. So, you know, it's just, it's again, that mean reversion. That's the kinda the long term way to think about it, and then within those trends, but as we see these trends emerge in healthcare, we definitely wanna be buyers of those because they look like they have a long, long runway. So some of these life science names, a lot of the biotech names. Interestingly enough, not a lot of the US pharma names, a lot of the European pharma names look good. Um, so it's, you know, it's more of a mixed bag, but certainly this is not the point to be, uh, sitting on your hands as healthcare breaks out and saying, ah, it's just another healthcare stock and they haven't done anything for years. I'm not gonna plan 'em. That's actually the kind of, of, of thinking that we like to hear because you, you tend to have at the beginning of long advances what we call the incredulous advance. Nobody believes it. Nobody cares. They just don't, you know, it's just not exciting. Um, and that's where a lot of those healthcare names are right here. It feels like gold miners we're sort of in that camp, like the beginning of the year we're starting to go up and nobody believed it. Silver looks better than gold, believe it or not. Um, but look at aluminum, look at, um, look at copper. Look, I mean. All the metals look good. I mean, it's not just a, and it's, it's global in nature. It's not just a US phenomena. So it's, um, you know, there's something, there's something happening there that I think is, is real. Why do you think that is, Jeff? Just because, you know, the, the, the last copper Bull run was attributed largely to China, just massive building spree. And we don't, we don't have that now, unless it's data centers. Yeah, I, I don't know. It's, it's a, it's a, it's a fair question and again, I kind of use the charts as my muse and don't get too wrapped up in the narrative. 'cause the narrative can be, um, can be misleading. Um, yeah. So the problem, the like, and I'll, I should give you a, a. A real life example. Like one of the things that we're scratching our heads with right now are the data centers. Um, they do not look good, right? And everybody's talking about how the data centers are the, you know, picks and shovels of the, of the gold mine or the gold rush, right? And we're like looking at those saying, well, if that's the case, then there's a bigger problem out there. So the, the reason. The reason that we do what we do is because if I was just building into that narrative, of course, of course the data centers are gonna be great, and so I'm gonna own them. And they're going down and I'm thinking the market's dumb. It doesn't get it. Maybe, maybe I don't get it right. And so I try just not to get too. Wedd in the narrative, just for my own safety. With that in mind, any, any words for people at the end? You know, very tail end of, of the year and heading into 2026? For investors specifically? For one, from a seasonal standpoint, uh, December tends to be a decent month, so I think that that's important to, to keep in the back of your, of your mind. Um, and I look at seasonality just like a blackjack player does, right? If you have a 17, you really don't want to be, um, you know. Uh, taking a card, the chances of you, you know, hitting a four or better is very, very low. So, um, if you play seasonality, you have to play it the same way every time, right? So we just, you know, generally tend to have a bias of being more long as we get into December, um, where we are in that market cycle clock. Uh, and knowing where the puck historically goes, um, I think that's setting up decently for 2026. There are, there's always gonna be a wrinkle, and I do think the wrinkle will be, we're probably gonna have some, um, reality check. With AI and things are gonna start to, you know, to, to provide oversold conditions and, you know, better places to be a buyer. Um, I'll talk real briefly about the difference between a momentum market and a trend market because I do think that that's important. A trend market is the path of least resistance. It's kinda like if you spill, you know, water on a table, at some point it's gonna find the path to least resistance and go onto the floor. Um, that's what trend markets do. There's nothing urgent about 'em. You can, you know, kind of play 'em at your own pace. You don't have to. What we call, you don't have to be a price taker. You could be a price seeker. In other words, I don't have to buy, you know, today's price. I can probably put a order in three or 5% below and get a better price on it. There's just not a lot of urgency in a momentum market. And we were in a momentum market in, in April, in, in May of this year. Um, those are where you have to be a price taker. In fact, the risk is that you're not a price taker and you're trying to be a price seeker. In other words, I'm trying to get a better price and the market just gets away from you. Right. So we're not in that type of environment today. I'd like to be in that type of environment 'cause they have a long, uh, they have a long shelf life to them. Um, but um, you know, as we're looking at it right now, it's like, look, I think things are decent. We're gonna look for oversold conditions. Um, we're gonna look at rotating out of certain things that are extended and looking at things that are just emerging, like healthcare. Um, and I think that's, you know, that's, as we think about the playbook for 2026, um, that's how we're thinking about it. I think the market's in a decent spot, the equal weight. Um, the equal weight market is, is doing well, which we tend to look at because it's a little bit more broad and doesn't have the same weighting of the mega cap names. But, um, yeah, I, I, I'm, I'm okay with the market. I'm not jumping up and down and, and, uh, euphoric, but I think we're in a decent spot and probably going to a better spot, which is, is good news. As these rates come in, how should a, an investor who's nervous, right, because in, in financial research. The, the bias, I would argue is usually bearish, right? Like, like the bearish argument always sounds so smart, right? And, you know, but, but, but how, how, how do you look at a market right now in terms of, you know, I, I'm, I'm gonna be invested for the next five or 10 years. Um. Should, should you be scared? Like people spend so much time trying to avoid the next great financial crisis and they, I think a lot of the investors have missed out on huge gains because of that. Just like a coin flip, right? If you think about the market in any given year, the market is up about 62% of the time, right? So if I had a quarter that was, that was tilted in my advantage 62% of the time, or you knew that maybe I don't even know it, but I'm flipping it and you know it. You're going to, you know, you, you're gonna play that game as much as you possibly can. Right. Until I figure out that there's something wrong with that quarter. Right. And I think one of the problems that the average investor has, and this is true for the professional too, so that's not even fair to say the average investor, but um, is they, they do not look at how high a bar. It is to be bearish, right? Like the, the bar to be bearish, to be convinced that it's bearish, I think is an easy default mechanism. But the default, because of that 61%, 62% number should always be bullish, right? So, as I, as I like to say, I'm a fully invested bear. In other words, I'm always, I'm always nervous. I'm always, you know, uh, skittish about something, but I know what the probabilities are. And so, you know, if you say, oh, well look, I, you know, I missed the, I missed that bear market, that 20% draw down, that was great. Well that is great, but did you get in right? Because if you missed the bear, but you didn't take advantage of the bull, you were much better off just being in the bull and waiting the bear out. Now, I'm a big believer. In asset allocation, because I do think that what that does is it helps to minimize that, that problem, uh, as long as you. Do what you're supposed to do, which is you have to rebalance that allocation, right? So if my 60 40 equity exposure gets tilted because, uh, of a bear market right now, I, I end up at 50 50. Well, what you're supposed to do is you're supposed to sell your 10% down of the bonds. Right. To get it back to 40. And reinvest that into equities at the right time. Right? So that's what you're supposed to be doing with that. A lot of people won't do that. And so having that cadence ends up being a really, really important part of the strategy because it, it by definition will get you moving into the right. Asset at the right time, not at the wrong time. And so, uh, I think that's a really, really important part of that lesson, which is have, you know, have a decent allocation. We tend to be a little bit more aggressive than 60 40 because of, again, because of that skew. And we'll use our market cycle clock and everything else to. Uh, to adjust that allocation process. But, um, but that's a big part of it. I mean, I, I always like to have bonds because at some point with a deep oversold condition like we had in April, I wanna be able to say, you know what, I'm gonna take my 25% bond exposure and just eliminate it because there, there's a great opportunity here in equities and I'm actually gonna go a hundred or 90% into stocks because these things are lined up in a way that gives us. Uh, what we think is an advantage that worked in in April, and it usually does. I mean, tactically there are these things that we look at with sentiment and over sole conditions and the like. Um, but it's always important to be able to have some of that powder to, to be able to then, you know, move those chips around as, um, as you see fit. Jeff, you, you have a great podcast called Off Script Ren Mac Off script, and it's you and Neil Duda. It's, and, and, and some of your, your associates, Steve. Great, great, great. Thank you. Really fun. I listen to a bunch of them. We do it on Fridays. It's, um, you know, it all started Ed from. Uh, back in the day when we were traveling a lot and we had an office, we're all doing it, um, from our own, uh, respective offices now, but we'd come in on Fridays and, you know, we were all, we were all in different spots, traveling, whatever, and it was just, it was just to make sure we didn't have any blind spots. Right. So, Hey Neil, what are you seeing in the economy? Here's what I'm seeing in the market. Steve's, what's going on in DC what, you know, we honestly, we took an hour and we'd go in the conference room and just eat our, you know, egg sandwiches and, and talk a little bit about what's going on. And one of the sales guys came in one day and said, Hey, like, you guys should like record this. This is like, this. Just, you know, just kind of, and like, all right, why not? So, uh, we kept the same format and we just, uh, we do it in a podcast now and we do it on Zoom. Uh, just kind of talk about what we're seeing and, um, and what's going on, but I appreciate that. Thank you. It's on YouTube and Spotify and yeah. Red Mac off script. Where else can people learn more about Renaissance Macro? 'cause I, I mean, I just can't say enough. I'm a big, big fan of what you and Neil Dota do, uh, and this podcast I think was. Super, super interesting and helpful. It's gonna be really helpful for people. Well, thank you for having us. Sure. Uh, re Mac access. Uh, so www, I think old people say that now. Uh, dot uh, reac access.com. Um, that is, uh, a, a, a good way to, to, to get our work. We, we do have a free newsletter that goes out on Fridays just as a, you know, kind of main points. Uh, and you can get that on our, uh, on our Twitter feed or X feeded. And, um, uh, it's in the comment section of, uh, uh, run back off script, which is on Spotify, apple, and then, uh, YouTube as well. But thank you and I appreciate that. Uh. Sometimes we, you know, when you're doing these things, you're like, Hey, is anybody listening? Is there, you know, are we just doing this for ourselves? Like, what's going on here? But, uh, no, I appreciate it. I know the feeling. Yeah. I, I'll have links to all of your, your sites and your podcasts in our description as, uh, below, uh, as well as in our email fulfillment. Jeff, that was a ton of fun. Thank you so much for your time. I really appreciate it, ed. Thank you so much. And I know that we're almost neighbors, so we'll have to get together for a, a beer or a coffee or something, uh, in between. Count me in. I would like that. Alright, excellent. Thank you. There are links to Ren Max's website and their podcast in the description. Thank you so much for your support. And if you haven't noticed, we are so close, so close to 60,000 subscribers on this channel. So if you haven't subscribed yet, I hope you'll consider doing so now. You'll be in great company.
Why the "Fully Invested Bear" Wins in This Market | Jeff deGraaf
Summary
Transcript
We measured about 50 different bubbles. Historically, what we found is if the asset class doubles in price within a two year period of time, that's considered a bubble. The default should always be bullish, as I like to say, I'm a fully invested bear. In other words, I'm always nervous. I'm always skittish about something, but I know what the probabilities are. Hi, I am Ed D'Agostino from Mauldin Economics, and this week we are talking macro and markets with one of the best in the business. Jeff DeGraff from Renaissance Macro Research is with us, and I have to say this was one of my absolute favorite conversations of the year, just packed with value for any kind of investor. I hope you enjoyed as much as I did. Here's Jeff. Jeff Degra, it's great to see you. Thank you so much for taking some time to, uh, join us today. Ed, thank you for having me. I have a colleague who was at Lehman, I think at the same time as you, Jared, Dian. He said to me that you're the best technical analyst in the world. Well, that's, so, no, no pressure. Yeah. Great. Thanks Jared. Well, tell him I said hi. I haven't talked to him in years, so, uh, I'd love to reconnect with him. Oh, okay. I, I would be happy to make that happen. I wanna start, Jeff, by just digging into sort of your, your process and make sure we set the stage for the context of what we're going to talk about here. 'cause a lot of times you jump onto a YouTube finance video, right? And someone's talking about their ideas. You have no idea what their investment time horizon is, um, or what their process is. So as a technical analyst. H how do charts fit into your work? Is it, is, is the chart, the gospel, the Bible, or is it the start of a process? It's a great question. And I came to charts, um, you know, I think where, how a lot of people come to charts, which is, that's, you know, that was not my degree. You know, I didn't go to school, I didn't go to church school. Um, I've got a, a degree in finance. I've got a CFA, uh, so I, you know, really came from the fundamental side of things. And frankly, I was just dismayed by the disconnect between. You know, what quote unquote was supposed to happen and what was actually happening in the markets. And, um, my, who actually ended up being my mentor, and I worked with him as a fabulous, uh, human being for one, and, and was a really great mentor, Steve Chauvin, uh, at Merrill Lynch. Um, I joined him at Lehman Brothers when he left. And um, and the whole reason was he had this call. Uh, at Merrill Lynch in, uh, I think it was the two 15 call, uh, and he just talked about charts and it was an equity and option update. And I was on the, the analytical side, on the, uh, the fundamental side. And I remember listening to him, and I'm just saying, son of a gun, this guy gets it more. Right? Like looking at charts, then you know what's happening from the fundamental side. So what is going on here? Um, and I, you know, I picked up a couple books and it just really resonated with me, which was. Um, you know, uh, a lot like, uh, playing poker, if you will, right? It was about probabilities, uh, and making sure that those were in your favor. Um, and I, I started just, you know, more and more in the business started saying, boy, I, I, I think you're better off listening to the market than you are telling the market what to do. And, um, you know, I always felt like from a fundamental side, I was telling the market what it should be doing and it couldn't care less what I thought. Right? So, um, and I've just had a lot more success listening to the market and then. Frankly, I still have the fundamental bias. I still have more of a value bias. I, you know, there are return on capital. All those things are important to me for sure. Um, but I do listen to what the market's telling us, not only about individual stocks, but industries and countries and sectors. And then, um, taking that and then applying it to where we are within the economic cycle and, and, you know, the likely path of rates and currencies and the like. This might be. Too simplistic of a question, but h how about timeframe? How, how does time, how does your work slot in, in a, in a world where it's really hard to beat the index? Right. Um, h how, how does charting and technical analysis fit in and where do you find it gives you an edge in terms of timeframe? It's a great question, and I think it, I think it varies depending on, on the. The, the practitioner, um, you know, I know day traders that use it, uh, and use it successfully. I would say, ed, I think the most important question to ask, and I I will answer your question. I think the most important question to ask yourself is, am I a trend follower or am I a mean reverter? That's, you know, it's almost like growth and value. You have, you have two choices. As a chartist, either you think that up is good and it will continue, or you think that up is bad and it needs to mean revert. And, and that's kinda what value value investors do, right? They think that, uh, somehow the past is prologue. And so we're gonna be stuck with if we're up too much, we have to go down. If we're down too much, we have to go up. We're growth investors are, you know, kinda like blue skies ahead and, and, you know, here's how that's gonna work. And, um, you know, other, other industries, uh, sectors, companies. Um, you know, lose their edge and they're gonna go to, you know, zero or circle the drain. Right. So I, I think that's an important question that everybody has to ask themselves. We've done a lot of testing on it. We've done a lot of, of, um, of work around this. And it's very clear to us that the right path, if you want, sort of. Career sustainability is being a trend follower, not a mean reverter. But at the same time, we do use mean reverting systems because um, it's almost like, you know, the shorting your cat, right? It can be both alive and dead at the same time. And so we will use trend following for kind of the intermediate term. Look, and then we'll use mean reversion for the very long term look, or in fact the very short term look. So it's, it's, it's, it's both. Um, and I'll, I'll give you some, some real clear statistics. Um, on a monthly basis, you'll find that if you were just to rank stocks in the s and p 500 on the returns over the last month, and you take the top 50. Versus the bottom 50%. The bottom 50% are more likely to be in the top 50% the next month. Right? The bottom 50, the top 50% are more likely to be in the bottom 50% the next month. Right. So there's that mean reverting tendency just on a month to month basis. Month to month basis. Right now, it's not everyone, but it's, you know, it's, if you were to say, Hey. Where are my probabilities? It, it, it, it works that way. If you take that out and extend it, um, really you have to get out at least three months. It's usually about six, but let's say it's 12 months. If you, if you do that same exercise 12 months out. The top 50% are more likely to be in the top 50% for the next 12 months. The bottom 50% are likely to be in the bottom 50% for the next 12 months. So again, like shorting George Cat, it's both alive and dead at the same time. Right? So we'll use mean reverting in the very short run because we know that there's some, some, um, some optionality there. Uh, but all within the context of where the trends are for the more intermediate term. And then once you get out, basically two years, it all falls apart. Like there's no. There's not a lot of usage that I can say, Hey, the last 12 months return has giving me some forward window. Once you get out two years, it's flip a coin and, you know, throw a dart at the board. It doesn't really make much difference. So our timeframe, which is really, you know, a byproduct of what our clients are looking for, is usually in that six to 12 month window, is how I think about it. Um, so that's, that's where we, you know, we'll use moving averages that are, say 65 days in length, 200 days in length. That's basically how that plays out. What we did find in, in our work is that your timeframe should be a reflection of the longest moving average that you use to identify trend, right? So if you're using a 200 day moving average, they're roughly 20 days in the, in a month, trading days in a month. Um, so that's a 10 month kinda holding period, and that works out pretty well. You could use, um, you know, obviously 240 day moving average, which would be a year, but you kind of, excuse me, you kind of want to keep your timeframe. Of your longest moving average that you're using to identify trend as your typical holding period. I think I just learned more about technical analysis in the last 10 minutes than, than the last two years. That was great. Was great. Hopefully the past holds as we go forward. That's an important part of it too. Right. Let's talk a little bit about sort of more specifics of your, of your framework. Uh, you, you have a great chart. One of the first. Things that I was exposed to at, at, at ren Mac was sort of the, the way you look at the market cycle and you have this great chart where you plot inflation on one axis and growth on the other, and, and you follow returns based on sort of an ellipse on that chart. Um, c can you talk a little bit about why you chose those two metrics? One of the things that we've done, it was, it was really the primary reason for starting REM Mac back in 2011. Um. Was we, we look at data. I mean, we're just kind of data junkies. It sounds, you know, nerdy and it is. Um, but it's, I mean, we just kind of get into it and, um, I think one of the things, so we, we just look at economic data and say. You know, I don't really care. I mean, this sounds flippant and I don't mean it to ob. I don't really care what the economy does. That's not my call, right? I mean, I care about what the market does and a lot of people, I think, make the, this presumption and it's just, it's just wrong that the market and the economy are the same thing. And they're not. And so one of the things that we did is we took all the, all the public economic data and just ran it through our statistical tests. And we've had different ways that we look at things. You know, there there is, there's statistical significance and then there is. Um, there is kinda like real world significance, right? So if I've got a, for example, you know, if I've got a system that is right 65% of the time and the average return is better than the loss, that might not be statistically significant, but it's economically significant, right? So we, we, we make sure that we're blending those two and always looking at it, but we've just basically ran all the, the data that comes out from the. The bbl s and you know, whatever the government, you know, when, when they're open, whatever they, they, they have, um, and they, and they give to us and we ran it through sectors and stocks and currencies and styles and everything else. Because what we found is that, hey, they may or may not be helpful in predicting the economy. But maybe they are or not helpful at predicting the market. And so what we found is that infl and in, in fact if you have the two you you mentioned, so we, we plot inflation on the Y axis, so that's the vertical axis. And we plot growth on the X axis. That's the horizontal axis. And what we found, which I think is, is kind of shocking to most people. Inflation is far more important. To the returns of the s and p, don't, let's not talk about GDP to the returns of the s and p then growth is, and in fact, and I think, um, contrarily, and this is a really important point, the worse the growth, the better the returns for the s and p because the s and p is actually more attuned. And sensitive to policy than it is to kind of the data, right? So in other words, and, and look, we've, we've all done this long enough where we know you sit, you know, you sit and you see a print, you're like, oh, that's great news. And the market's down, you're kinda like, wow, well, well, the market's down. That doesn't make any sense. Actually it does because the great news means policy is likely to be less accommodative going forward because it doesn't need the help. And so they're taking away the punch bowl, et cetera. So what we find is that the inflation tends to be the precursor. To whatever the policy's gonna end up being. And so that, that distinction, that, uh, juxtaposition between where inflation is and where growth is. Um, while it's helpful for the economy or the, the economic call, it's far more influential to the s and p call. And then we, we tease out of that. What sectors do well, we tease outta that. If, is it, is it, uh, cyclicals versus defensives? Uh, what happens to bonds, right? Because we can also make that call so that it's a big part of our asset allocation process where we say, Hey, we know historically what should be happening here, and then we'll use the technicals as a basically position sizing, okay? Are the technicals aligning with quote unquote what history's telling us should happen? Because then we'll make. Obviously a bigger bet, if you will, will, will have a more confident position. Um, and, you know, we'll skew things in that, uh, in that regard. But I think, you know, if, if anything, and what I like about it, it's a quantitative way, um, that we can see kind of what happens to the s and p. And as much of, of of that being important. I think what's even more interesting and kind of warms my heart, frankly, is it's very contrarian in nature. Like when, I mean, I'll give you a great example, the the, the bottom left, which is when inflation is low, so call it deflation potentially, and growth is in the basement. Um, we call that the de deflationary bust zone. That's right where we were in 2009, right? That's where we actually were, um, in the fourth quarter of 2023. Um, and so the deflationary bust zone, and I guarantee you you're reading the Wall Street Journal and you're not thinking, man, how do I get more exposure to equities? You're kind of thinking, geez, do you know, is this business right for me? Maybe I should go be a school teacher or something. Right? So, um, it, and, and, but, but those are statistically meaningful changes. In the s and p when we're in those zones. And so, you know, that just kind of gives us the confidence of the history, what the history tells us. And I think if you really peel back the onion and you start looking at it, boy, that's a lot about policy. And the policy makers are gonna end up having at some point an influence on the equity markets, either positive or or negative. Uh, and it gives us an idea as to where, you know, where they are right now. Um, in fact, we, we update it, uh, every month. So we, we just update it at the beginning of this month. Um, and it's in the left zone. So the left zone would say that growth is slow. And I think you can see that in some of the PMI data and the inflation is in the middle zone. So we're kind of in this structural slow growth, but not great on the inflation front. And historically, we know that the s and p returns about six point a half percent on an annualized basis in that zone. Not terrible, but not great. Um, and so it's, you know, it's a, it's a choppy market. It's a fickle market. It's one. That, you know, does not tend to have a lot of breadth to it, which is what we're seeing right now. Um, it tends to favor, interestingly enough, it tends to favor discretionary. Um, because it tends to lead the idea that the policy makers are gonna come to the rescue. So, you know, we're keeping a very close eye on discretionary, and that's still a mixed picture here. Um, but we also know in this zone, when we're in the zone, you have a tendency to go lower, right? You don't have a tendency to go higher. In other words, inflation doesn't tend to pick up here because growth is low. It tends to actually continue to contract now it hasn't contracted, um, with the same pace or trajectory that we would expect historically. But we also know sitting below this zone, the, in other words, where the puck is likely to go, is a very bull zone for, for stocks. So we'll see. So essentially. Measuring inflation versus growth is a precursor to where you see rates are going to go. Yeah. Well, what policy, what policy is likely to do? Right. So in 2021, um, at the, um, you know, the tail end of 2021, we were in the top right hand zone. So growth was hot, inflation was hot. And it just said, boy, we gotta be really careful. We're talking about annualized returns of like 1%, you know, obviously with a downside tail to it. Um, and you know, lo and behold, within six months, you know, they were raising rates and I mean, it was, honestly, it was saying, it was saying well before the Fed had done anything, that they were gonna be late to the party. That they were, that they were, they were allowing rates to be way too loose for too long because of what you're seeing. And again, you could. Pick up the Wall Street Journal and see everybody had a job. Everybody's spending money, every, you know, all the kind of COVID rebound effects of fiscal policy and, and, and cheap money. Um, were playing the, the themselves out, including the SPACs, right? So you kinda look at some of these things saying, all right, like, this is ridiculous stuff, and this is the point where the market tends to be vulnerable. This is a good time to hit that d-ring on your, on your shoot and, you know, parachute out of these things. That's funny. You mentioned SPACs. I mean, I always, uh, SPACs have been around forever, right. I mean, for, for a long, long time. Right. And I always kind of thought they were a neat. Idea if you could get behind a sponsor that you really liked and had a great track record, uh, it might be a fun way to to, to speculate. And then Wall Street did what Wall Street does, and I've been doing this for 35 plus years. And, and, and I, I understand the political side of it and the, you know, the Wall Street gets a bad reputation and at the same time. You sit there in this business and you're like, boy, I mean, people can't help themselves. Like they, they, wall Street gives the people what they want at the time that they want it. The problem is people want the wrong things at the wrong time. That's the big problem. But it's a business, right? And so they, you know, they just don't care. We're not in the issuance business. So I don't, you know, I have nothing to do with that, but, uh, you see that a lot for sure. Well, let's talk a little bit about interest rates. And I, and I want to, uh, since, since that was a great setup for it, um. Before we get into sort of. The theoretical, like should the fed cut rates and, and who's going to be the next fed chair? Um, can maybe just talk a little bit about where the area, the parts of the yield curve that you focus on. You know, 'cause we've got the 10 year, uh, above 4% right now. Um. Two year kind of stick a little, seems, feels like it's a little stuck. Um, how do you look at the different parts of the yield curve and what, what import do you put on them? Well, we look at 'em all, um, and I'll, I'll give you just some, some stats again about what the, the market likes and how the market thinks about it. The market is, is very sensitive to two year yields, right? So the short end of the curve, um, remarkably enough, if you look at that statistically. There's not much evidence that the Fed fund rate really matters. Um, but the two year does, and I think what that is is the two year is really a reflection. Of the expectations of the Fed, not for December, not for January, but for the entirety of kind of those dot plots, uh, over time. Right. And so we're always interested when there's a big disconnect between kind of what the Fed's saying or thinking and what the two year yield is telling us, because usually the two year yield's gonna get it. Right. Right. So, um, we, we we're very sensitive to what's happening to the two year yield. Now the good news is. All the trend indications for the two year yield are lower. So that's beneficial for equities. In terms of a, of a backdrop, the market doesn't care too much about the 10 year yield. Um, I wanna say that carefully 'cause there are points that it definitely does. Um, what one of the things that we look at is. Um, frankly, you could, you could just use a Z-score. I said we weren't gonna talk about Z-score, but I just did. Um, you could just look at the range of, of yields, like, uh, you know, I've been at 5%, which was the high, and I've been as low as 3% over the last three years. So I've got that, uh, that, um, uh, those, those barbells, right, the high and the low. Um, and if you break that down into percentiles and said, okay, well if that. You know, 200 basis point ranges in a percentile. If I'm in the top 80th percentile, that tends to be bad for equities. If I'm in the bottom 20th percentile, it tends to be good for equities. And then what's my rate of change? How quickly did I get there over the last three or six months? That tends to matter. So, so those are, those are interesting and important. What what was really interesting, um, and people have a hard time with this. The market couldn't care less where rates were anything longer than three years ago. So when people say, oh, but the rates were here in 1980 or what it was, you know, some crazy, it's like the market just doesn't, the market has already adjusted and it just doesn't care about that. Right. The th the three year range is about the look back for the market's memory in terms of what it cares about. So we don't really get too. Wrapped up in where rates were anything longer than two or three years ago. 'cause it just doesn't matter from the market's perspective. The other part, when I said the 10 year doesn't really matter. I, I, it's, it's, it does, but in a different way. The 10 year matters more in terms of its relationship to the two year yield, otherwise known as a yield curve. Right. And whether the curve is steep or the, the curve is flat or inverted, that does matter. So the perfect setup for the market, for the s and p is the two year yield moving lower. The yield curve steepening. Right. In other words, the, the 10 years kinda staying where it is, at least relative to the two year yield as it's coming down, and that's putting a gap between those two. That's the, that's the sweet spot for, for equities. Historically, I think I heard you say in another interview that sort of the, this. This normalization that we're going through of rates or that we've experienced where it's, where rates are sort of back to what we remember when we didn't have gray hair. Um, that, that it's actually seems to have been positive for the markets. Is that, is that right? Yeah. Um, you kind of get getting out of the financial repression, which, um, frankly had you told me that in 2016, I mean, this is a great reason why I'm a. Chart guy. Um, you know, I would've been like, oh, there, there's no way the market or the economy, it's just been so used to these ultra low rates and negative real rates and everything else that we can't stand on our own two feet. I mean, it's just gonna be, we need the crutch. And we, we haven't. And so this normalization, but partly through the. The banking system, and I think you've seen it really, you know, probably, uh, more than anywhere is in, uh, both Japan and in Europe, right? I mean, European financials look fantastic and nobody trusted those for, you know, 15 years after the financial crisis, right? So I think this, this mechanism of kind of normalization of a steeper yield curve and, you know, positive real rates and everything else, um, has actually translated into something where. There's a, there's a market message, there's an economic message embedded in things, and so people can make decisions that are good or bad based on what the, um, what the market's telling you and, and, uh, you know, real economic decisions. So all that said. Should the Fed cut? I think they should. Uh, Neil dda, who handles the, the economic side of the ledger at, at ren Mac, um, you know, looks at employment and everything else certainly is, is in the camp that they should be cutting. And he's been in that camp for six months now. So he's, he's been, uh, pounding on the table. Um, I would say I, I think it's more of a tossup than, than, than Neil does from what I'm seeing. Um, I think they should cut because of, uh, what we're seeing in some of the, the, the sectors and the factors and, and the way that that's playing out. But at the same time, when I look at things like the, the spread between, uh, say double B and triple B, uh, credits, right? So you're kinda taking the Fed or you're taking the treasury out of it. Um, you know, credit spreads are. Historically pretty tight. I mean, there's not a lot of evidence that there's much stress or strain in the system. Now, that doesn't mean there won't be, right? So, you know, Neil's using the. Uh, the economic, uh, and, and particularly the employment side of the ledger to say, Hey, this, this will be a problem because people are losing their jobs and this is, you know, this is where things are likely to head, um, and housing and everything else. So I, I do think the Fed can cut, and I don't think it's gonna be nearly as inflationary as what people are worried about. We'll see. Um, but, um, certainly it does appear that, um, that there's room and the, and the two years have been telling you that as well. So I think, you know, I, I take my cues from that, as you mentioned, that in 2016 you would've. You would've never guessed we would be where we are today. Uh, absent charts with regard with, with the interest rate going up the way it has. Uh, I think the same phenomenon happened with tariffs, right? I mean, we, earlier this year, the market panicked a little bit, and I think in the economy there was a lot of panic and some disruption related to tariffs. But as we sit here today, you know, tariffs have gone from an average of 2%. Two years ago to, I think the latest I heard is about 10% now. Um, it's a pretty big change and pretty quick and yet it's kind of been absorbed. Does, did, does, is that, is that how you see it? Do you see any further ripple effect from tariffs? I think it's gonna be, yeah. I mean, sure. There, there, there, it's an ongoing process, right? I mean, that's the one thing with this administration, it's always hard to, to, to know exactly what's gonna happen from day to day. I, I think one of the things, and, and we talked about it, um. You know, in our podcast and, and uh, internally was there's just this notion of, um, tariffs have to be, uh, absorbed or the cost of tariffs have to go to the consumer. Hands down, point blank. That's it. That's the way it works. And that's just not necessarily true. Now, you know, you can, you can end up with it. It has everything to do with the elasticity of demand and supply, right? If, if I've got alternatives, then I'll go to alternatives. Now it might not be. The color I want, it might not be the quality I want. It might not be, you know, a perfect fit, but there are alternatives that, and, and, and those tend to get played out with substitutes and everything else. So to us, the tariff, the, the, the tariff concerns were way too one dimensional. And, you know, the economy and consumer choices is a pretty complicated, um, uh, complicated formula. And I think people were just, you know, and I like to keep things simple for sure, but I think people, people were looking at it way too one dimensionally that, you know, if this, then that. And that's just not the way that has to work. And I think that's what we're seeing, you know, today, is that the substitution effects and, and frankly, you know, some of the other side of the ledger, which doesn't get talked about, which is our tariffs that we had on our goods. Have gone down as well. Right. So we, we've kind of balanced that out. It, people are looking at it as a one-way street and it's like, well, was that really a one-way street or is it a two-way street? And you know, the traffic jam that we had on our side is now flowing a little bit more freely. That's a great point. No one ever brings that up Right. On mainstream media. Yep. Yep. Never hear that. Right. I wanna get to the markets with you, but one, one last question, and this might be a little bit more of a, of a Neil dta, uh, question, but this concept of a khap economy. Where you've got a certain cohort that's doing incredibly well, uh, obviously the, the wealthy cohort, and then you've got sort of the everyone else, right? Uh, the lower, you could argue 55%, maybe even more that are feeling like they are falling behind. Um. H how much do you guys talk about that at Ren Mac? And, and do you, do you feel like it will eventually be a narrative that hits the markets? Yeah, it's a good question. Um, you know, we, we see it in, uh, you can see it in some of the discretionary names. Uh, you can see it in other. Parts. I mean, I think housing is, is part of that, right? It's unaffordable to so many. I mean, this is really why the inflation story is an important one because that, that, as much as anything, or more than anything really is the, the impact of what happens to that, that lower. Uh, that lower tier and, um, you know, the purchasing power. Um, but you know, frankly, the real wages have been decent. Um, you know, not spectacular, but certainly not, not bad. And I don't think they're as bad as people expect that they, they, they would otherwise be. Um, I. Look, uh, he, he spends a lot more time on this than I do. But I would just say that when, when we're looking at it through the market's lens, it doesn't seem that it's a big problem. Now, it's a social problem. I think it's a political problem in terms of the economic problem. And I want, I wanna be sensitive because obviously there are people in this, in this, you know, uh, the silo. Um, but, uh, in terms of the, the overall impact, I, I think, and I've always believed this. The markets, and I'm not talking about the stock market, I'm talking about the economy, but the, the market based economy is usually very good at, at. Helping to figure this out, right? And whether that's, you know, shifts in, in employment where I can no longer work in a paper mill, but I have to do something else. I mean, the, the, the free market, the ability to do that and labor mobility tends to be a really, really important part of, of what's happening. And I get it that people don't wanna change jobs and, and the like, but um, look, I think, you know, you and I are probably facing the same thing with ai, right? I mean, there's so many things that. That are gonna be able to be done without our help as much as what it was previously. Hopefully the years of experience that we have can, uh, can make up for that. But I think, you know, there, there is a certain displacement that's, uh, that's inevitable. I do have to admit, I often find myself thinking I'm. I'm glad that I'm closer to the end of my career than the beginning. 'cause this feels like a big challenge. 100%. I couldn't agree more. Yeah. I've got, I've got kids that are, you know, in college and, uh, and I, I, I tell 'em like, you're, you're in a way, you're very lucky because. You know, you're coming out of this at the time where you're not gonna be disrupted. You're gonna be a disruptor, but make sure that you know how to disrupt. Because if you don't, if you think it's, you know, filling in my seat, that's not gonna work. You're gonna have to think about it completely differently. It's already turning in into an old saw, right? It, it AI's not going to take your job, but someone who uses AI will 100%. Yep. Couldn't agree more. Let's jump into the markets a little bit. Um. Couple of asset classes that have been doing incredibly well. And so you have people asking if, if, if they're in a bubble. And I've heard you talk about your thoughts on, on bubbles and so I, I kind of wanna just unpack that a little bit. Gold ai, um, uh, utilities all, all kind of going crazy lately. Um, what are they in bubbles? How do you measure bubbles? How do you trade bubbles? Really be interested in all your thoughts around that. Yeah, I'm happy to talk about that. It's, it's, uh. It's ongoing research, but, um, I think the, the first thing that you have to do is say, okay, well I have to have a, a rule. And this rule has to work for one. Um, and it can't have, uh, it can't have, uh, many, if any false positives, right? Like it has to be tried and true. Um, and so one of the things that we just, you know, went through and we, we, we measured, um, about 50 different bubbles historically, um, from a, from a big macro perspective. So this, this would be sectors, industry groups. Um, markets and commodities, not single stocks. It's a different, it's a different bucket. Um, what we found as a very good, like doesn't get it wrong, um, is if the asset class doubles in price within a two year period of time, that's considered a bubble now. That's just saying, I can identify the bubble that doesn't tell you anything about what's gonna happen from there. Right? So we looked at a lot of different ways. Okay, well I'm in a bubble. How should I think about it? What's the, the, the right way to play? How should I think about it from a risk adjusted standpoint? In other words, sharp ratios. How should I think about it from, you know, actually extracting, uh, extracting profit out of it? Uh, it's a very, very challenging, um. Uh, uh, regime if you will, a bubble regime. Uh, and lemme give you some stats around that. In every instance on average, uh, regardless of do I sell as I'm going up, do I sell as it's coming down? Do I sell proportionately? Do I sell more at the beginning and less the end? Or do I sell less at the beginning and more at the end? Like, we looked at all these different ways to do it. Um, the, the, the best long term. Way to play. It was, and this, it doesn't work for all of 'em, but it just works for consistently. The best was you say, okay, I'm gonna, I'm gonna wait for a 30% draw down and I'm gonna pull the rip chord and I'm just gonna be done. Right. And if it goes back and makes another new high. I'll take half of what I, what I, uh, took out and I'll reinvest it, right? Because it might go higher and I don't want to do it at the very end. So the, the, the, the Nasdaq did this in 1997. Um, was the first indication of a double within two years, right? So had you pulled all your money out, you would've missed out and probably been throwing it all in, in 2000, right? So you have to have kind of, this, I need to be able to reinvest, but I need to do it proportionately lower than where I was before. Every, every one of these on a median basis, you lose money. About 20% of 'em will go on to double from there. Right, but that 20%, if you're in that 20%, it makes up for all the other ones, right? So if you're a cowboy, this is how we think about it. If you're a cowboy, you can play, but have that stop if you're kind of a normal investor. I would take half of the money out and I would just, I would just let it, just let it go. And if I have a 30% draw down, I'll, I'll take it out. But the bub the problem with a bubble, and this is why we, we identified it, is usually technically, um, and I, when I say usually I'd say 80%, 85%. If I'm gonna have a top, if I'm gonna transition from a bull market to a bear market, it's not gonna be a V top. You don't go straight up and then straight down you're gonna kind of go sideways. You're gonna chop around. The moving averages will cross over. It'll roll over and, and that'll be a top. And, and those are easier to, to identify. They're easier to play because they, they take time to develop. V tops are literally just this vacuum that just sucks people in, sucks capital in, and then just eliminates them. Right? And there's just no, no getting out. The, the psychology is different. The whole thing is crazy. So we wanted to be really careful on how we thought about that and, and, and identifying it so that we know, hey. If this isn't for you, this is a good place to step aside or take some money off the table and think about this differently. Um, it's interesting because with stocks, with single stocks, that that number is truncated. It's about six months. So if you double within six months, that's kind of your double the, the, your, your bubble, your bubble zone. And again, very, very dangerous. We use like a 20% drawdown. Um, that's kind of how we think about it. But um, just know that in that when you're, when you're in those zones. The probability of having a 50% drawdown is well over 60%. It's about 65%. So if you're, if we identify it as a bubble, I can say to you, Hey, ed, there's a 65% chance that you're gonna have a 50% drawdown. So just be ready for that. And most people. When they hear that, say, okay, I'll take some chips off the table and, you know, sit on my hands. And that's, that's what really what we're trying to do is just make people understand the, the probabilities, um, because the emotional toll is so, these things are so seductive, um, that you wanna be really, really careful with 'em. Right. So, um. You know, we, we, um, we identified gold as a bubble about a month and a half ago. 'cause it doubled, um, and it promptly corrected, right? I think of the week that we said, Hey, it's in bubble territory. It, it promptly corrected and consolidated, but, um, it didn't draw down 30%. So it just says, Hey, this is still kind of in that zone. Just be aware that you're in a. Uh, in a frothy, you know, in a frothy condition that you wanna be careful of, the Nasdaq actually has to get to about 36,000 to be officially in a bubble. So it's got a long way to go to officially be in a bubble. Um, you know, there's some stocks that certainly feel stretched to us. If we look at one of the ways that we, we measure the, the, um, the, the market. Um, or again, this is a little bit more fundamental, but we look at what's the, what's the proportion of say, semiconductors. In market cap to the entire market cap of the market, right? So I've got the entire market and I've got semiconductors. We'll look at that, that percentage, and then we'll compare the revenue of semiconductors, right? So all the sales of the of semiconductor firms to the entire revenue of the market, and look at that differential. Right, and right now, semiconductors, um, their revenues to, uh, the market versus their market cap is way out of bounds. It's, it's right where it was in 2000. In other words, the market has priced in something that the sales just don't really, you know, come close to, to justifying. On the other side of the ledger, healthcare looks very, very cheap. The, what you're seeing from a revenue standpoint. Um, versus the market cap that, uh, that is represented by healthcare in the market is, is actually pretty attractive. So, you know, it's just, it's again, that mean reversion. That's the kinda the long term way to think about it, and then within those trends, but as we see these trends emerge in healthcare, we definitely wanna be buyers of those because they look like they have a long, long runway. So some of these life science names, a lot of the biotech names. Interestingly enough, not a lot of the US pharma names, a lot of the European pharma names look good. Um, so it's, you know, it's more of a mixed bag, but certainly this is not the point to be, uh, sitting on your hands as healthcare breaks out and saying, ah, it's just another healthcare stock and they haven't done anything for years. I'm not gonna plan 'em. That's actually the kind of, of, of thinking that we like to hear because you, you tend to have at the beginning of long advances what we call the incredulous advance. Nobody believes it. Nobody cares. They just don't, you know, it's just not exciting. Um, and that's where a lot of those healthcare names are right here. It feels like gold miners we're sort of in that camp, like the beginning of the year we're starting to go up and nobody believed it. Silver looks better than gold, believe it or not. Um, but look at aluminum, look at, um, look at copper. Look, I mean. All the metals look good. I mean, it's not just a, and it's, it's global in nature. It's not just a US phenomena. So it's, um, you know, there's something, there's something happening there that I think is, is real. Why do you think that is, Jeff? Just because, you know, the, the, the last copper Bull run was attributed largely to China, just massive building spree. And we don't, we don't have that now, unless it's data centers. Yeah, I, I don't know. It's, it's a, it's a, it's a fair question and again, I kind of use the charts as my muse and don't get too wrapped up in the narrative. 'cause the narrative can be, um, can be misleading. Um, yeah. So the problem, the like, and I'll, I should give you a, a. A real life example. Like one of the things that we're scratching our heads with right now are the data centers. Um, they do not look good, right? And everybody's talking about how the data centers are the, you know, picks and shovels of the, of the gold mine or the gold rush, right? And we're like looking at those saying, well, if that's the case, then there's a bigger problem out there. So the, the reason. The reason that we do what we do is because if I was just building into that narrative, of course, of course the data centers are gonna be great, and so I'm gonna own them. And they're going down and I'm thinking the market's dumb. It doesn't get it. Maybe, maybe I don't get it right. And so I try just not to get too. Wedd in the narrative, just for my own safety. With that in mind, any, any words for people at the end? You know, very tail end of, of the year and heading into 2026? For investors specifically? For one, from a seasonal standpoint, uh, December tends to be a decent month, so I think that that's important to, to keep in the back of your, of your mind. Um, and I look at seasonality just like a blackjack player does, right? If you have a 17, you really don't want to be, um, you know. Uh, taking a card, the chances of you, you know, hitting a four or better is very, very low. So, um, if you play seasonality, you have to play it the same way every time, right? So we just, you know, generally tend to have a bias of being more long as we get into December, um, where we are in that market cycle clock. Uh, and knowing where the puck historically goes, um, I think that's setting up decently for 2026. There are, there's always gonna be a wrinkle, and I do think the wrinkle will be, we're probably gonna have some, um, reality check. With AI and things are gonna start to, you know, to, to provide oversold conditions and, you know, better places to be a buyer. Um, I'll talk real briefly about the difference between a momentum market and a trend market because I do think that that's important. A trend market is the path of least resistance. It's kinda like if you spill, you know, water on a table, at some point it's gonna find the path to least resistance and go onto the floor. Um, that's what trend markets do. There's nothing urgent about 'em. You can, you know, kind of play 'em at your own pace. You don't have to. What we call, you don't have to be a price taker. You could be a price seeker. In other words, I don't have to buy, you know, today's price. I can probably put a order in three or 5% below and get a better price on it. There's just not a lot of urgency in a momentum market. And we were in a momentum market in, in April, in, in May of this year. Um, those are where you have to be a price taker. In fact, the risk is that you're not a price taker and you're trying to be a price seeker. In other words, I'm trying to get a better price and the market just gets away from you. Right. So we're not in that type of environment today. I'd like to be in that type of environment 'cause they have a long, uh, they have a long shelf life to them. Um, but um, you know, as we're looking at it right now, it's like, look, I think things are decent. We're gonna look for oversold conditions. Um, we're gonna look at rotating out of certain things that are extended and looking at things that are just emerging, like healthcare. Um, and I think that's, you know, that's, as we think about the playbook for 2026, um, that's how we're thinking about it. I think the market's in a decent spot, the equal weight. Um, the equal weight market is, is doing well, which we tend to look at because it's a little bit more broad and doesn't have the same weighting of the mega cap names. But, um, yeah, I, I, I'm, I'm okay with the market. I'm not jumping up and down and, and, uh, euphoric, but I think we're in a decent spot and probably going to a better spot, which is, is good news. As these rates come in, how should a, an investor who's nervous, right, because in, in financial research. The, the bias, I would argue is usually bearish, right? Like, like the bearish argument always sounds so smart, right? And, you know, but, but, but how, how, how do you look at a market right now in terms of, you know, I, I'm, I'm gonna be invested for the next five or 10 years. Um. Should, should you be scared? Like people spend so much time trying to avoid the next great financial crisis and they, I think a lot of the investors have missed out on huge gains because of that. Just like a coin flip, right? If you think about the market in any given year, the market is up about 62% of the time, right? So if I had a quarter that was, that was tilted in my advantage 62% of the time, or you knew that maybe I don't even know it, but I'm flipping it and you know it. You're going to, you know, you, you're gonna play that game as much as you possibly can. Right. Until I figure out that there's something wrong with that quarter. Right. And I think one of the problems that the average investor has, and this is true for the professional too, so that's not even fair to say the average investor, but um, is they, they do not look at how high a bar. It is to be bearish, right? Like the, the bar to be bearish, to be convinced that it's bearish, I think is an easy default mechanism. But the default, because of that 61%, 62% number should always be bullish, right? So, as I, as I like to say, I'm a fully invested bear. In other words, I'm always, I'm always nervous. I'm always, you know, uh, skittish about something, but I know what the probabilities are. And so, you know, if you say, oh, well look, I, you know, I missed the, I missed that bear market, that 20% draw down, that was great. Well that is great, but did you get in right? Because if you missed the bear, but you didn't take advantage of the bull, you were much better off just being in the bull and waiting the bear out. Now, I'm a big believer. In asset allocation, because I do think that what that does is it helps to minimize that, that problem, uh, as long as you. Do what you're supposed to do, which is you have to rebalance that allocation, right? So if my 60 40 equity exposure gets tilted because, uh, of a bear market right now, I, I end up at 50 50. Well, what you're supposed to do is you're supposed to sell your 10% down of the bonds. Right. To get it back to 40. And reinvest that into equities at the right time. Right? So that's what you're supposed to be doing with that. A lot of people won't do that. And so having that cadence ends up being a really, really important part of the strategy because it, it by definition will get you moving into the right. Asset at the right time, not at the wrong time. And so, uh, I think that's a really, really important part of that lesson, which is have, you know, have a decent allocation. We tend to be a little bit more aggressive than 60 40 because of, again, because of that skew. And we'll use our market cycle clock and everything else to. Uh, to adjust that allocation process. But, um, but that's a big part of it. I mean, I, I always like to have bonds because at some point with a deep oversold condition like we had in April, I wanna be able to say, you know what, I'm gonna take my 25% bond exposure and just eliminate it because there, there's a great opportunity here in equities and I'm actually gonna go a hundred or 90% into stocks because these things are lined up in a way that gives us. Uh, what we think is an advantage that worked in in April, and it usually does. I mean, tactically there are these things that we look at with sentiment and over sole conditions and the like. Um, but it's always important to be able to have some of that powder to, to be able to then, you know, move those chips around as, um, as you see fit. Jeff, you, you have a great podcast called Off Script Ren Mac Off script, and it's you and Neil Duda. It's, and, and, and some of your, your associates, Steve. Great, great, great. Thank you. Really fun. I listen to a bunch of them. We do it on Fridays. It's, um, you know, it all started Ed from. Uh, back in the day when we were traveling a lot and we had an office, we're all doing it, um, from our own, uh, respective offices now, but we'd come in on Fridays and, you know, we were all, we were all in different spots, traveling, whatever, and it was just, it was just to make sure we didn't have any blind spots. Right. So, Hey Neil, what are you seeing in the economy? Here's what I'm seeing in the market. Steve's, what's going on in DC what, you know, we honestly, we took an hour and we'd go in the conference room and just eat our, you know, egg sandwiches and, and talk a little bit about what's going on. And one of the sales guys came in one day and said, Hey, like, you guys should like record this. This is like, this. Just, you know, just kind of, and like, all right, why not? So, uh, we kept the same format and we just, uh, we do it in a podcast now and we do it on Zoom. Uh, just kind of talk about what we're seeing and, um, and what's going on, but I appreciate that. Thank you. It's on YouTube and Spotify and yeah. Red Mac off script. Where else can people learn more about Renaissance Macro? 'cause I, I mean, I just can't say enough. I'm a big, big fan of what you and Neil Dota do, uh, and this podcast I think was. Super, super interesting and helpful. It's gonna be really helpful for people. Well, thank you for having us. Sure. Uh, re Mac access. Uh, so www, I think old people say that now. Uh, dot uh, reac access.com. Um, that is, uh, a, a, a good way to, to, to get our work. We, we do have a free newsletter that goes out on Fridays just as a, you know, kind of main points. Uh, and you can get that on our, uh, on our Twitter feed or X feeded. And, um, uh, it's in the comment section of, uh, uh, run back off script, which is on Spotify, apple, and then, uh, YouTube as well. But thank you and I appreciate that. Uh. Sometimes we, you know, when you're doing these things, you're like, Hey, is anybody listening? Is there, you know, are we just doing this for ourselves? Like, what's going on here? But, uh, no, I appreciate it. I know the feeling. Yeah. I, I'll have links to all of your, your sites and your podcasts in our description as, uh, below, uh, as well as in our email fulfillment. Jeff, that was a ton of fun. Thank you so much for your time. I really appreciate it, ed. Thank you so much. And I know that we're almost neighbors, so we'll have to get together for a, a beer or a coffee or something, uh, in between. Count me in. I would like that. Alright, excellent. Thank you. There are links to Ren Max's website and their podcast in the description. Thank you so much for your support. 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